WM's Caesar clarifies on recycling profits

Wed, 11/20/2013 - 12:06 | danl

WM's Caesar clarifies on recycling profits

By Dan Leif, Resource Recycling

Nov. 20, 2013

Bill Caesar, the head of recycling for Waste Management, spoke to Resource Recycling this week and provided insights on the recycling division's financial results and some news-making comments WM's CEO made in their wake.

During a sustainable business conference earlier this month, the waste giant's president and CEO, David Steiner, took to the stage and told the investor-heavy crowd, "Recycling is not profitable. We have lost money in recycling over the last one-and-a-half years." That was followed by an appearance on CNBC in which Steiner said the company lost $130 million on recycling last year and is set to lose at least $100 million this year.

During the CNBC session, Steiner added that the publicly traded company, which has been influential in rolling out single-stream recycling collection systems nationwide, would in a perfect world prefer more sorting by residents.

In the interview with Resource Recycling, Caesar, who is president of Waste Management Recycle America, said WM technically has not been losing money on recycling collection, processing and materials selling.

He said it's true the division's profits during 2012 and 2013 have been far below 2011 levels when commodity prices were "at their highest level, probably ever." But he then noted the company's recycling business has still generated income from its operations. Caesar said recycling operations at the company "made a decent amount of money" in 2012. This year has been more of a struggle. "We are within a throwing distance of break-even," he said, "but we are not losing $100 million this year."

So why did the CEO imply such losses? Caesar said since he was not present when Steiner made his comments, he did not know the exact context in which the CEO was speaking so could not provide a clear answer. In a follow-up, a WM publicist said Steiner's reference to a $100 million loss in WM's recycling business referred to the anticipated year-over-year (2012 vs. 2013) decrease in income from operations within the company’s recycling operations, including rebates paid to hauling operations by third-party MRFs.

On the single-stream issue, Caesar said the company's momentum toward commingled collection is not set to slow down. On CNBC, Steiner said, "It would be more economic if you separated [materials]." Caesar said that comment doesn't imply shifting separation strategies at WM. "[Steiner] was describing a world that doesn't and won't ever exist," Caesar said. "We make that tradeoff between increased volume and increased residue. Generally we can live within those bounds, but when the amount of contamination goes up meaningfully and for no good reason other than ... a lack of consumer awareness, then single-stream will struggle."

That goal of decreasing contamination in the WM recycling stream may explain why Steiner brought up the company's recycling profit struggles in public forums in the first place. Caesar indicated that apart from lower commodity prices, China's Operation Green Fence has been the biggest factor dragging down WM recycling profits. The Asian nation's requirements for cleaner scrap imports mean WM has to spend more money reducing residue in collected recyclable material. In addition, the company has seen decreases in the amount of material it's able to sell, because a greater portion is being discarded as residue.

The Green Fence has, of course, been a major industry talking point for months, but the fact that the largest municipal recycling firm in North America is continuing to feel such deep impacts from the policy shows that the phenomenon's ripple effects are expanding further into the municipal realm.

"It's in our interest and in communities' interest to improve the education at the consumer level," said Caesar. "In some cases, we've actually seen punitive measures taken by municipalities where penalties are meted out to residents who are repeat offenders of using their recycling bin as a trash bin. I would not be opposed to that in certain circumstances. It's the carrot and the stick."

WM's third-quarter earnings report, released in late October, notes the company's operating costs increased by $96 million from the same period a year ago. That cost climb was attributed in part to increased recycling costs and the acquisition of Greenstar Recycling and its 12 materials recovery facilities. Waste Management's overall net income in the third quarter was $291 million, a 30 percent year-over-year increase and a 19 percent gain over the second quarter of this year.